In a nutshell, Financial Independence is defined as the point where you are earning more money with your passive income than you need for current living expenses.  Your passive income can be any income that involves little to no effort on your part to generate that money.  It can include interest from savings, investment dividends, royalties, businesses you own but don't manage, websites, withdraws from retirement accounts or other investments, etc.  Your current living expenses are just that, money to pay for rent or mortgage, food, utilities, travel, entertainment.

The great thing about FI is that number can be different for everyone.  It's up to you, because you get to decide what your monthly expenses are and therefore what your monthly income requirement is.  Maybe you want a large home for entertaining friends and family, or you 'd prefer to have a more modest home but want to travel more, it's up to you.

The great thing about FI is you get to choose what you want out of life.  You also get to choose how long it will take to get there.  Mr Money Mustache, Peter Adeney, retired comfortably at the age of 30.  It was simple but not easy - and took hard work, but it can be done!,

Step 1 - Know thy numbers

The first step to getting to where you are going, is to know where you are.  And to do the you need to know your current income and expenses.  You don't need a budget yet, you just need to calculate your total income and total expenses.

For your income separate out your active income, the money you get for trading time for money, and your passive income.  This will help you in later steps to calculate you Financial Freedom (FF) number.  Also, separate out your expenses so you will know what expenses you can decrease or eliminate in the next step.

Now that you know your passive income and your expenses, you can do a quick check.  Subtract your monthly expenses from your monthly passive income.

FF number = Passive Income - Monthly Expenses

If your number is greater than or equal to zero then congratulations - you are financially free!  Welcome to the club.  You can stop here and start enjoying the new found pleasure of being free.  However, if you are like most of us and your FF number is less than zero then we have some more work to do.  If your FF number is zero, then you will want to continue with the rest of the steps to make sure you have a bit of a buffer when those unexpected things in life come your way.

Your FF number also tells you how far away from financial freedom you are.  For example, if you have $1,000 a month in passive income and your monthly expenses are $2,000, then you FF number is -$1,000.  Meaning you need to do one of three things, increase your passive income by $1,000/month, decrease your expenses by $1,000/month, or a combination of both.

Step 2 - Cut the fat

Now that we know our expenses, it's time to start cutting them.  Again this is up to you.  Some people want to achieve financial independence as quickly as possible, while others don't want to sacrifice those things that are important to them.  Most people should start out cutting expenses slowly.  Unless you are extremely motivated or have a huge amount of willpower, cutting expenses too quickly will cause you to fall off the wagon and you'll have to start all over.

Try bringing your lunch to work instead of going out to eat.  It's a small thing that adds up quickly.  Instead of stopping at one of those fancy coffee places try one of those fancy creamers in your work coffee.  You get the idea.

One of the biggest expenses most people carry is Debt.  This expense can be a large percentage of your monthly outgoings.  The average American owes nearly $16,000 on credit cards and $28,000 in auto loans.  That's costing you hundreds, if not thousands of dollars a month.

The goal of cutting is to ensure you have extra money left over at the end of the month so that you can put it to use in the later steps of this plan.  Yes, if you want financial independence you are going to have to save and build up your net worth.

Step 3 - Show me the money

The FF number is made of two parts: income and expenses.  We've covered off the expenses in the last step so it's time for the income portions.  While cutting expenses is a great place to start,  you can't eliminate all your expenses.  You still got to eat!  So increasing your cash flow by cutting expenses is limited, earning more income is not.

The fastest way to get to financial independence is to save more, and the easiest way to save more is to make more.  Increasing your income is also a quick way to make a large impact on any debt you carry month to month.

One of the easiest ways to increase your income is to simply ask for a raise at your current job.  I know it can be stressful, but that one simple question to your boss may get you further along the path to financial freedom.  Side gigs are a great way to get some extra cash.  Most likely someone, somewhere, needs some help and your current skill sets could be just what they are looking for.  Try looking on Fiverr, Upwork, or the dozen of other freelance/gig websites out there.

Step 4 - Multiply your passive income

Remember back in step 2 when I said you were going to need some cash leftover each month?  Well here is where we put that cash to use and start multiplying it.

Now hopefully you already have an emergency fund setup, preferably in an online bank that's paying higher than average interest.  If not, please start by putting this leftover money into your online savings account until you have three to six months of funds saved away (6 to 12 if you're self-employed).

Now that you have your emergency funds stashed away, start squirrelling this cash away in an index fund.  There are tons of them out there.  I use VTSAX from Vanguard due to the low fees and easy investment options.  This fund does require an initial investment of $10,000 so you may need to use one of the other versions like VTI the EFT.  There are plenty of options and strategies we will cover in another post on our site.

Quick Start Guide

Looking for the quick start guide for Financial Independence?  Here they are:

  1. Know thy numbers.  List all your income and expenses.  Subtract your monthly expenses from your monthly passive income.  These is how far away from Financial Independence you are.
  2. Cut the fat. Lower monthly expenses.  If you have credit card or auto loans use this money to make additional payments to your debt.  It's called a debt snowball
  3. Show me the money. In addition to decreasing your expenses, increase your income.  This makes the whole process quicker.  Again if you have debts use this extra money to pay those down, this includes using any bonuses or tax refunds!  See the link above.
  4. Multiply your passive income.  Once you have paid down your debt you can now use this extra cash to start saving and invest.  Use index funds and/or EFTs.  This money will now be multiplied month after month and year after year.


Here are some tools and resources that I use.

Personal Capital - I use Personal Capital to track my Net Worth and they have a great Retirement Planner as well.

Of Course I use Vanguard for my index funds and ETFs


As you grow your monthly investments and they start compounding over and over,  and you lower your expenses, the FF number you calculated in step 1 will go from a negative number to a positive number.  Once that happens you are technically financially free.  However you can't just stop there, as life and situations change you need to always be watchful.  If your expenses increase or your passive income decrease you may find your FF number has turned negative again.

Here is a short list of some of the books every looking to become financial independent and retire early Entrepreneur should have on their to read list.  It is by no means a complete list.  Here is the link for a reading list about entrepreneurship?  If you have suggestions please leave a comment below.

For more than twenty-five years, Your Money or Your Life has been considered the go-to book for taking back your life by changing your relationship with money. Hundreds of thousands of people have followed this nine-step program, learning to live more deliberately and meaningfully with Vicki Robin’s guidance. This fully revised and updated edition with a foreword by "the Frugal Guru" (New Yorker) Mr. Money Mustache is the ultimate makeover of this bestselling classic, ensuring that its time-tested wisdom applies to people of all ages and covers modern topics like investing in index funds, managing revenue streams like side hustles and freelancing, tracking your finances online, and having difficult conversations about money.

A strategic combination of smart financial choices, simple living, and increased self-reliance brought me financial independence at 30 and allowed me to retire from my profession at 33. Early Retirement Extreme shows how I did it and how anyone can formulate their own plan for financial independence. The book provides the principles and framework for a systems theoretical strategy for attaining that independence in 5-10 years. It teaches how a shift in focus from consuming to producing can help people out of the consumer trap, and offers a path to achieving the freedom necessary to pursue interests other than working for a living. The principles in Early Retirement Extreme show how to break the financial chains that hold people back from doing what they truly want to do. The framework has been used by many people over the last few years to accomplish a variety of goals. It provides people a means to achieve almost any goal, whether it’s debt-free living, extended travel, a sabbatical, a career change, time off to raise a child, a traditional retirement, or simply a desire for a more resilient and self-sufficient lifestyle

Since money is the single most powerful tool we have for navigating this complex world we’ve created, understanding it is critical.
Unfortunately, benign neglect of things financial leaves you open to the charlatans of the financial world. The people who make investing endlessly complex, because if it can be made complex it becomes more profitable for them, more expensive for us, and we are forced into their waiting arms.
Here’s an important truth: Complex investments exist only to profit those who create and sell them. Not only are they more costly to the investor, they are less effective.
The simple approach I created for her and present now to you, is not only easy to understand and implement, it is more powerful than any other.

The Richest Man in Babylon by George S. Clason

A review as written by my 12 year old daughter:

The 7 simple rules of money 1) save money 2) don’t spend more than you need. 3) invest wisely. 4) avoid investments that sound too good to be true. 5) own your home 6) Ensure a future income protect yourself with life insurance. 7) aim to become wiser and more knowledgeable.

Babylon was  the wealthiest city in the world at the time of its height because its people appreciated the value of money.
It’s simple to say, but many people never achieve a serious measure of wealth because they never seek it.  They never truly seek it, focus on it, and commit to it.
You should save at least 1/10th of what you earn. More if you can afford to do so.
Surround yourself with people who are familiar with money, who work with it each day, and who make lots of it.
Enjoy life while you are here.  Do not over-strain to save. 
What each person calls their “necessary expenses” will always grow to match your income unless you resist that urge.  Do not confuse your necessary expenses with your desires.
Increase your ability to earn.  Improve your skills. As you profect your craft, your ability to earn more increases.
If you desire to help your friend do not do so in a way that brings their burdens onto your.  There are many ways to help people.  You don’t have to choose the ways that restrict your time, money, energy, or ability to care to yourself.
The soul of a free man looks at the world as a series of problems to be solved. Meanwhile, the should of a slave whines, “What can I do?”
If you are in debt, live on 70% of what you make.  Save 10% for yourself. Use the remaining 20% to repay your debts.
Work attracts friends who admire your industriousness.  Work attracts money and opportunity.  “Hard work is the best friend I’ve ever had.”
The Millionaire Next Door: The Surprising Secrets of America's Wealthy by Dr. Thomas J. Stanley and William D. Danko

The bestselling The Millionaire Next Door identifies seven common traits that show up again and again among those who have accumulated wealth. Most of the truly wealthy in this country don't live in Beverly Hills or on Park Avenue-they live next door. This new edition, the first since 1998, includes a new foreword for the twenty-first century by Dr. Thomas J. Stanley.

Growing up financially
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Growing up financially content is for educational purposes only and should not be used for investing real money. is not an investment adviser, brokerage firm, or investment company. Christopher Graham and are not professional money managers, accountants, or financial advisors. Any investment involves the taking of substantial risks, including but not limited to, complete loss of capital. Every investor has different strategies, risk tolerances, and time frames. Contact a professional certified financial advisor before making any financial decisions.
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